Maine’s daily newspapers grapple with a changing industry and a well-heeled newcomer

Times are tough for daily newspapers across the country, but Maine readers braced in March for the nearly unthinkable — the demise of the Portland Press Herald, flagship of the what was once the state's largest and most successful media company.

Reports of the daily's near-death were not exaggerated, according to Greg Kesich, the paper's editorial writer, who also sits on the corporate board of MaineToday Media, the parent company.

“The bankruptcy papers were all drawn,” he says. “The only question was when we might have to file them. We were literally living payroll to payroll.”

Up the coast, a chain of weeklies owned by VillageSoup, an innovative Internet news service that expanded into print, did go down. Three weeklies and one biweekly, including some of the oldest newspapers in the state, shut down March 9 after owner Richard Anderson announced that his effort to restructure debt had failed, and said, “We can no longer sustain our operations.” A total of 56 employees lost their jobs.

But some of the papers are back in print under the ownership of Reade Brower, owner of the Free Press in Rockland, which had competed with the once three-times-weekly Courier Gazette. The Courier Gazette began publishing again in April, as did the Camden Herald and the Belfast Republican Journal. Apparently permanently idled were two papers purchased by Village Soup in 2008 — the Capital Weekly in Augusta and the Bar Harbor Times.

Brower says of Anderson, “He did a brilliant job of branding VillageSoup and creating a terrific online community.” But Anderson stumbled after purchasing the Courier Gazette, Brower says, because “his vision included the misplaced notion that print is a dying medium and it should be replaced by the Internet.”

The near-extinction of the Press Herald has certainly created opportunity for others. Portland now has a free daily, the Portland Daily Sun, part of a chain with similar papers in New Hampshire, as well as some thriving weeklies.

The Bangor Daily News has also entered the Portland market in a concerted way, with former Press Herald business writer Matt Wickenheiser moving to the BDN two years ago. Bangor recently hired Seth Koenig, a reporter and former Maine Journalist of the Year, from the Brunswick Times Record, and photographer Troy Bennett from the same paper. Health editor Jackie Farwell, a former Mainebiz senior writer, also works in Portland.

Todd Benoit, the BDN's director of news and new media, says that with four news staffers in the area, he's thinking of setting up a bureau office.

“It wasn't that we were planning on becoming a statewide paper,” he says. “But from our website, we could see that we had a lot of readers in Portland, so the hirings made sense.”

Feeling the pinch

The ongoing turmoil at the Press Herald has taken a major toll on the company's value since the market peak in 1998, when Blethen Newspapers bought the Press Herald, Maine Sunday Telegram, Kennebec Journal in Augusta and Morning Sentinel in Waterville for a reported $260 million. The exact figure hasn't been publicly released.

Richard Connor, a daily publisher in Wilkes-Barre, Pa., led the investment group that bought the papers from Blethen in 2009, for “$20-$30 million,” according to Tom Bell, a reporter and president of the Newspaper Guild, the company's largest union, who also sits on the board. That purchase included significant real estate — the downtown Congress Street office building and an abandoned printing plant across the street — that Connor later sold.

As for why the paper was struggling so badly less than three years after the Connor purchase, some point to the compensation Connor offered to himself and his two top lieutenants. They totaled an estimated $2 million annually, plus management fees paid to the Wilkes-Barre paper, also estimated at $2 million a year, according to sources within the paper.

Connor was ousted last October and the next buyer was expected to be the 2100 Trust, an investment firm headed by Aaron Kusher, which includes Chris Harte, scion of a prominent newspaper family and a former Press Herald president. But negotiations stalled because of further givebacks asked from the unions, which had just signed a new contract in December, says Bell. With bankruptcy looming, the papers finally found a white knight in S. Donald Sussman, wealthy hedge fund owner and husband of 1st District Rep. Chellie Pingree.

In a statement, Sussman told Mainebiz no one can predict the changes technology will create in advertisers' and readers' habits. “What is clear is the increasing demand for timely information,” he said in the release. “We need to accommodate this thirst for information in every way we can. This is why we have hired five more reporters, why we are introducing a new home page in a matter of days, and why we will continue to build the organization to fit the reality of the future.”

Sussman's reported $3.3 million cash investment produced a 75% equity stake that led some observers to conclude that the company was worth only $4.4 million.

Not true, says Kesich. Sussman also agreed to pay off $7.6 million owed to RBS Citizens, a regional Northeast lender. That liability came to light through a lawsuit filed in Cumberland County Superior Court by McGrann Paper of Charlotte, N.C., which said it hadn't been paid for 300,000 pounds of specialty paper. Sussman also agreed to make additional, unspecified investments in an effort to restore the papers to health.

“This is a philanthropic venture,” says Kesich. “He doesn't expect to make a big profit.”

“What is a paper worth?” asks Bell. “If it can't turn a profit, it probably isn't worth anything.”

Hitting the restart button

The first fruits of Sussman's investment were on display in late April, when Editor Cliff Schechtman hosted a newsroom party for four new employees — including State House reporter Steve Mistler, hired away from the Lewiston Sun Journal, political reporter Colin Woodward and business writer Jessica Hall.

“It was great to see a full newsroom again,” says Kesich. “At a lot of dailies, all you have are good-bye parties.”

And it was about time, Bell says. Since the Connor group bought the company in 2009, it shrank from 600 employees to 400, but the newsroom took a disproportionate hit, going from 30 reporters to nine; by comparison, the BDN has 18 general news reporters. The reason for the extraordinary shrinkage, Bell says, was the buyout packages Connor offered, which were widely accepted in the newsroom. “We asked management not to accept every offer, but they took them all,” Bell says.

If there was a silver lining for the union, which endured pay and benefit cuts of more than 20%, it was the realization that “it makes a real difference to be represented, to sit on the board,” Bell says.

Even as board meetings went from a leisurely once a quarter to “practically every day,” as Kesich recalls it, the three union representatives — another seat goes jointly to the Teamsters and Typographers locals — started to have a real impact, including the shift away from the Kusher-Harte offer.

The company is now seeking a permanent CEO, who is expected to be hired by June, Bell says.

Up the coast some distance, Reade Brower is attempting to pick up the pieces from VillageSoup, which began with considerable promise. Former CEO Anderson once landed an $800,000 grant from the John S. Knight Foundation to provide “open source software” for community publishing, but never seemed to find his stride after he purchased the Courier-Gazette chain from Crescent Publications of South Carolina.

Brower says he didn't understand why Anderson decided to merge the Rockland and Camden papers — two fiercely independent communities — and de-emphasize print, including converting to free circulation.

Brower says, “A small community news entity can't be free if you want to keep it vibrant and current.” The print editions have returned to paid circulation, and there's also an 8 cents-a-day fee for accessing content online. Though it seems small, “We're raised enough money to pay for two reporters,” Brower says.

The Free Press, a 27-year-old free competitor to the Courier Gazette, had record revenues in 2011, he says, and receipts “are trending up again for 2012.”

A little further Down East, Editor Earl Brechlin surveys the wreckage of his old paper, the Bar Harbor Times, with rueful affection. Brechlin was the editor there for 18 years, in two stints, having started in the pressroom, until his bosses made a demand in 2001 that he couldn't stomach. The Crescent Publishing owners were seeking an operating profit of 23%, which required laying off another newsroom employee. He resigned and went to work for Alan Baker, owner of the Ellsworth American, to launch a new paper, the Mount Desert Islander, where he remains today.

In one sense, Brechlin's paper won the newspaper war with the more established Times — in business since 1914 — but he takes no pleasure in it. “We toasted the departure of a grand lady,” he says of his former paper. “There was no celebration.” While there may be some increases in circulation and advertising at the MDI, Brechlin says they will likely be modest. “We already had most of the customers who'd be interested,” he says.

The next era of news

In Ellsworth, owner-publisher Baker tends to more practical concerns, including the challenge of running a small company that he bought from the legendary James Russell Wiggins — a former Washington Post editor — 21 years ago.

One thing he's sure of: locally owned and managed papers are a better deal for the papers and their readers.

Baker views the creation of huge newspaper chains in the 1980s — Gannett, Knight-Ridder, McClatchy — as a function of the enormous profits newspapers were earning at the time, in the trough between the demise of competing city dailies and the rise of online publishing.

“It was a great earnings opportunity for them at the time,” he says. “Newspapers regularly turned over 20% operating profits.” The Blethen purchase in Portland was an example of that era's end, he says.

It's the fragmentation of the ad market that has eroded profitability, he says. A recent report released by the Project for Excellence in Journalism says for every $1 increase in a newspaper's Internet advertising sales, there's been a $7 decrease in print ad sales.

Baker says newspapers can survive and even grow, but they have to change. He offers specific examples. When he worked at the Philadelphia Inquirer's Sunday paper — then the nation's fourth largest — five department stores each bought eight pages of ads every Sunday. Now, there's one department store, Macy's, “and they might take a page once or twice a month.”

The American has its challenges, too. In January, one of its biggest advertisers, Morrison Chevrolet, was sold to Darling's in Bangor. A weekly full-page ad became a much less profitable insert.

“We knew we had to get to work, and we did,” Baker says. The ad staff managed to recruit 12 new businesses as advertisers, which collectively equals the revenue from the Morrison account.

Baker is also a big believer in not giving away the product. He's a disciple of Peter Kann, who was board chairman at Dow Jones and the Wall Street Journal when newspapers started publishing online.

As Baker recalls, Kann was presented with a mockup of a $100 million website. The designers told him the electronic paper would be free, and advertising would pay all the costs. Kann instead decided to create electronic subscriptions, something the paper maintains to this day.

Daily newspapers, with few exceptions, have never charged for access. But in 2011, the New York Times began charging readers who access more than 20 articles a month, and recently cut that to 10. Some other dailies have erected “pay walls,” but no major Maine daily has done so yet.

“The question is whether you lose more revenue from advertisers than you'll gain from subscriptions,” says Benoit at the BDN. “We haven't got that answer yet.”

At the Sun Journal, the other family-owned Maine daily along with the BDN, Executive Editor Rex Rhoades recalls an experience with a pay wall that didn't work out. “We were burned once,” he says. He's also concerned that the travails at the Press Herald not be seen as a harbinger for other papers.

“We've remained profitable throughout the recession,” Rhoades says. And while the Sun Journal made newsroom cuts — about 17% — it's preserved reporting positions. Rhoades hopes the downsizing is over.

For his part, Baker doesn't believe pay walls are the answer, because they still blur the line between reading and subscribing.

In 2009, he employed the Peter Kann principle and took down all free content, which was limited, from the American and Islander websites. “We have a few complaints,” he said, “but only a few.” Instead, the papers use a common “Fenceviewer” website, with short news items and lots of business directory features.

The papers now offer an electronic subscription, which has proved popular with out-of-state readers. They charge $28.95 for an annual digital subscription and $39 for print. One surprise: 40% of local readers switched to electronic subscriptions.

More complications

At the Press Herald, Kesich says “We know that hiring a few reporters isn't going to turn things around, or make us profitable,” but adds, “we knew it was something we had to do.” As for the future, he says with Sussman on board, the papers at least have breathing room.

Kesich admits there are complexities in having a politician's spouse as principal owner, even though Sussman says he has no interest in news decisions. The Sunday Telegram endorsed Pingree when she ran for Congress in 2008, but backed her first re-election opponent, Dean Scontras, in 2010. Is it conceivable the paper might endorse Pingree's opponent this fall?

“I can't answer that question,” Kesich says. “Some people around here don't think we should endorse candidates at all.” That's one decision, he says, likely to await arrival of the new CEO.

Bell, who's been with the Press Herald for 13 years, says he doesn't feel like a survivor, though he can understand why others might think so. He notes that Kesich is now the lone editorial writer; there used be three. And there were once five editors and reporters on the business desk. Until Jessica Hall was hired last month, there were none.

Kesich looks to the paper's past. “Under the Guy Gannett ownership, this was an innovative company. It had the first radio station in Maine, the first television station. It was even the first to publish on the Internet.” The ability to innovate in the digital age, he says, will provide the ultimate answer to the company's future.

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